Chopsticks, Inc., makes chopsticks that are used in Chinese restaurants and in households across the Midwest. It has several different types of customers, including restaurants, department stores, and grocery stores. Restaurants order the chopsticks one to two cases at a time from a distributor that buys in large quantities and resells the chopsticks to the restaurants. Department stores buy directly from Chopsticks, Inc., and usually buy partial cases that are delivered directly to the stores. Finally, grocery stores buy for their entire chain so they order several cases at a time directly shipped to their distribution center, where they are broken down into smaller quantities. Chopsticks charges the same price to all three channels of distribution. Each channel marks up the chopsticks about 40%, so the price the ultimate customer faces is about the same regardless of where they buy the product.

The data for the three channels is in the table below. It details the work done to support the various channels.

REQUIRED:

a. Develop ABC charging rates for each of the activities.

b. Use this rate to charge out the cost of the various services to the customers.

c. Develop customer profitability statements for each type of customer.

d. Calculate the percentage profit for each type of customer.

e. Which customer class is the best for Chopsticks, Inc.? Which is the worst? Why?

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Chopsticks, Inc. Activity Distributors Department Stores Grocery Stores Cost Driver Sales NA NA $2,000,000 $750,000 $1,500,000 Cost of goods sold NA NA $960,000 $375,000 $720,000 Order processing $300,000 Orders 20,000 4,000 16,000 Case breakdown $50,000 Breakdowns 4,000 1,000 Shipping pocking slips $150,000 Packing slips 20,000 16,000 16,000 Delivery $200,000 Deliveries 20,000 16,000 16,000 Invoices $350,000 Invoices 40,000 50,000 40,000 Returns $175,000 Returns 100 500 150